Why Rebate?

Occasionally at 360 we get the privilege of really starting from scratch in helping clients build out new programs to market both to their channels and consumers. Invariably we talk about the never-ending “cash vs. other rewards” debate but another thing that often comes up is trying to quantify the outcome difference between a sales SPIFF and a consumer rebate program.

As with any other big business decision, the answer depends on many variables particular to your company’s goals, market conditions, agreements with partners, so in the absence of data particular to the reader’s company, today we will simply answer the question “why rebate?”

Help Your Retailers

The great thing about rebate programs is that your retailers can apply them however they like; they can apply the entire amount to a consumer discount or they can share in the rebate and help maintain their margin.

Perhaps one of your partners is a regional chain who is struggling with a significant quantity of one of your SKUs. If you are in the consumer electronics business, a great deal of that struggle these days comes from intense price competition, amplified by the fact that consumers have access to price comparison shop via their smartphones.

In order to compete in this type of marketplace, your retailers need to know that they have the flexibility to engage this type of price-sensitive shopper and still be doing viable deals on their showroom floor.

Consumers Love Them

Speaking of price-sensitive shoppers, put yourself in this shopper’s shoes for a moment: let’s say that you are in the market for a new set of tires for your car. One manufacturer offers a low regular price on a set of tires which your research tells you would be ‘good enough.’ Two other manufacturers who are known to make the best tires for your particular need have a higher price, but they are offering rebate programs that put the final price a bit closer to the ‘good enough’ tires. “Great,” you think, “now I can get a good deal on the better tires!” But since we’re on the topic of using a rebate to close the deal, let’s add one further wrinkle.

Let’s say that both manufacturers are offering rebates that put them at effectively the same price for very comparable goods. But let’s further assume that one is offering a mail-in rebate program and the other is offering an instant rebate where you get the discount right at the cash register and the work of claiming back the rebate money falls on the retailer. Which set of tires are you going to buy?

There is a ton of valuable research being published these days about behavioural economics and how rewards can enforce long-term behaviour (think salespeople) vs rewards that encourage short-term behaviour. So, to circle back, it is critical that you design each new program with clear business goals in mind: if your goals are short-term (such as driving sales on slow-moving stock, or creating a sales spike to meet some short-term fiscal goals) then an instant rebate program may be just the thing.

Although it is still a new service, 360 has created what we refer to as an Express Rebate program which is a bit closer to the traditional mail-in program, but with the notable difference that the consumer has the option to slightly reduce the amount they are being paid out in favour of receiving their claim payout faster.

As an example, in April 2013 we had a consumer call in to our office to compliment the manufacturer on how quickly they had delivered on their promise. She had made a significant purchase which entitled her to a rebate for in excess of $1200, and so naturally the large rebate value had figured prominently into her buying decision. The Express Rebate option made it possible for this consumer to enter her claim into our system on April 13th with her rebate cheque clearing her bank account on April 18th. Now she is not only thrilled with her purchase, but she is also hugely pleased with how that particular brand delivered on their promise to her.

Naturally, the data on the effectiveness of Express Rebates is still new and still being collected, but anecdotally we have learned that it has tended to help close some larger deals right on the front lines. Their is more detail on this in our e-book Leveraging The Consumer Rebate.